Baumol's Cost Disease

Which is a disaster if construction also got twice as expensive.

> If construction became really cheap, prices would still trend upwards since there's always some billionaire's money to be parked somewhere.

If construction became really cheap and there wasn't an artificial limit on how much housing you could build on a given lot then there would be tons of cheap housing and billionaires wouldn't find it a useful place to park money because it would have lower returns than competing investments.

Money does have real value, but only because it can be traded for valuable things.

But money in itself, as bills or numbers in a bank account, is useless until you trade it for something "real".

Does it though? Suppose that Wall St has discovered a strategy, like high frequency trading, that produces nothing but allows the one doing it to extract a margin that would otherwise have gone to the second-fastest trader. Many people are employed in a competition to be the fastest because being the fastest is rewarded but it's a zero-sum game where nothing useful is produced and the players each have to continuously spend resources to keep running faster in order to stay in the same place.

What benefit is the person now paying more for healthcare getting in exchange for this?

> It’s a tide that raises all boats, precisely because of this effect.

What if it's not all boats? Suppose it causes doctors to get paid more because people who have the wherewithal to become doctors could also work in finance, but it doesn't cause retail clerks to get paid more because Wall St isn't hiring them away from their existing jobs, and in the meantime they now have to pay more for healthcare.

> ...consider a case where finance becomes much more productive... leading to fewer people becoming doctors because finance is much more attractive.

This is the opposite of what one would expect from a sector whose efficiency increases, as modeled by Baumol. See the first bullet in the article: "The share of total employment in sectors with high productivity growth decreases, while that of low productivity sectors increases" (also see the detailed analysis in the Technical Description section). It might be theoretically possible that induced demand could still increase overall employment in a sector as its efficiency increases, but I think you have to make an argument why that would be true. During the industrial revolution, automation eliminated 98% of the labor required to produce a yard of cotton cloth, but between 1830 and 1900 the number of weavers in the US increased by a factor of 4, because demand increased due to lower prices [0]... although the US population also increased by a factor of 6, so as a percentage of the workforce weavers still declined, even as people consumed much more cloth per capita.

[0] James Bessen, Learning by Doing - The Real Connection between Innovation, Wages, and Wealth (2015), pp. 96–97.

But this can go too far. In London during 2000-2008, finance consumed every spare IT worker, as well as mathematicians and physicists. Salaries were far higher working for a bank than working in any other IT-related industry or start-up. Did this produce great works? Is London now better off because of this? In a word, no.

The total accumulated wealth in a society is a related but entirely different number.

Society produces housing and other necessities and people consume them in some amount and then have what's left as disposable income to spend on whatever they like, e.g. for going on dates.

Then a law is passed prohibiting the construction of housing with more than two stories. Building ten housing units on ten lots with ten foundations requires more labor than constructing ten units all on the same lot, so the price of housing increases, people have to spend more on housing and have less money left to buy flowers and some people quit their jobs at the flower shop to go pour concrete (while still getting paid exactly the same amount as before).

There is zero change in inequality but the cost of something has gone up and people have to eat it by getting less of something else.

If you're unable to eat because you spent all your resources paying for that residence near the grandparents you would certainly move.

That average has a lot of outliers. There are a handful of degrees which almost guarantee you gainful employment. Like, someone getting a law degree or prepping for hospital residency will make waaay more money than maths, liberal arts, or anything on PhD track. The latter do not have anywhere close to the same job prospects.

Furthermore, some degrees are extremely expensive to get. My guess is you got an engineering or CS degree, which in terms of "degrees with job prospects" are still reasonably priced. You can graduate and go into the work force with little debt (or at least, I did, YMMV). Less so for the lawyers and doctors pushing up the college average, who have to go to more expensive schools and even more expensive post-graduate programs. They rack up lots of student debt in the process. Even if it gives you a higher salary, you might not be comfortable with a decade and change of debt slavery.

That it's possibly signaling rather than something more concrete doesn't really matter to the economic analysis.

In practice most longtime Photoshop users paid the $600 once and some $200~ upgrade cost every 2-4 years. Adjusted for inflation its same or more than what you pay now.

If you think you'd be fine now with 25 year old Photoshop features you maybe forget how basic the product was compared to today. Further besides OS compatibility there were file format / camera raw version additions made over time that you'd have wanted.

I live in a high demand area. A perfectly cromulent house on a particularly good lot will sell for $1.5 million as a teardown. The new house will be 6,000+ sqft and be inhabited by a family of four. Builders won’t build smaller because the land price sets a hard floor. The most profitable and economically productive thing would be to split the lot and build several smaller houses, or build a small apartment building, housing several times more people for the same cost. But this isn’t legal. Construction costs don’t make a difference. If construction costs doubled, the new houses would just get smaller. Some of these teardowns would stop being torn down. The cost of living in the area would stay about the same.

Of course, it’s easy to mass produce sturdy furniture, such as office furniture. But it’s not what consumers think of as “high quality”.